The Amylyx Pharmaceuticals, Inc. (NASDAQ:AMLX) share price has softened a substantial 26% over the previous 30 days, handing back much of the gains the stock has made lately. For any long-term shareholders, the last month ends a year to forget by locking in a 71% share price decline.

Following the heavy fall in price, Amylyx Pharmaceuticals may be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 1.4x, since almost half of all companies in the Pharmaceuticals industry in the United States have P/S ratios greater than 2.9x and even P/S higher than 13x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Amylyx Pharmaceuticals

What Does Amylyx Pharmaceuticals' Recent Performance Look Like?

Amylyx Pharmaceuticals hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

Keen to find out how analysts think Amylyx Pharmaceuticals' future stacks up against the industry? In that case, our free report is a great place to start.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

In order to justify its P/S ratio, Amylyx Pharmaceuticals would need to produce sluggish growth that's trailing the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 33%. The latest three year period has seen an incredible overall rise in revenue, a stark contrast to the last 12 months. So while the company has done a great job in the past, it's somewhat concerning to see revenue growth decline so harshly.

Looking ahead now, revenue is anticipated to slump, contracting by 77% per annum during the coming three years according to the five analysts following the company. Meanwhile, the broader industry is forecast to expand by 20% per annum, which paints a poor picture.

With this in consideration, we find it intriguing that Amylyx Pharmaceuticals' P/S is closely matching its industry peers. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Key Takeaway

Amylyx Pharmaceuticals' recently weak share price has pulled its P/S back below other Pharmaceuticals companies. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Amylyx Pharmaceuticals' analyst forecasts revealed that its outlook for shrinking revenue is contributing to its low P/S. As other companies in the industry are forecasting revenue growth, Amylyx Pharmaceuticals' poor outlook justifies its low P/S ratio. Unless there's material change, it's hard to envision a situation where the stock price will rise drastically.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Amylyx Pharmaceuticals that you should be aware of.

If these risks are making you reconsider your opinion on Amylyx Pharmaceuticals, explore our interactive list of high quality stocks to get an idea of what else is out there.

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